A descriptive analysis of average productivity among health maintenance organizations, 1985 to 2001

This paper examines the evolution of average productivity among HMOs for 4,419 Health Maintenance Organizations (HMOs) from 1985 to 2001. For both IPA and non-IPA HMOs, HMO productivity increased from 1990 to 1996 and rapidly decreased from 1997 to 2001. In contrast to cost functions that show scale economies for IPA and non-IPA HMOs, production functions showed scale economies for IPA HMOs were constant and non-IPA HMOs having only slight scale economies. This suggests that much of the scale economies observed in cost functions are due to lower prices for resources used rather than improvements in production organization. Non-IPA HMOs and non-profit HMOs are more productive than IPA HMOs and for profit HMOs. Production organization for non-IPA HMOs appears to have improved over time, resulting in non-IPA HMOs being able to produce more member months of coverage with their production organization in 1997 to 2001 than they would have with their production organization in 1985 to 1990. Regulations requiring consumer involvement in HMO governance reduce productivity.